Wendy's Hopes Americans Will Have Breakfast With Tim

April 20, 1997|By Wall Street Journal

Wendy's is getting a little brother.

The fast-food chain that founder Dave Thomas named for his daughter is importing a well-known Canadian restaurant, named after professional hockey player Tim Horton, that specializes in doughnuts, bagels and coffee. Wendy's International Inc., which bought the Tim Hortons chain for about $450 million in 1995, plans to open about 100 Tim Hortons in the United States by the end of the year.

The rollout begins in northern markets such as Detroit - where some customers already know Tim Hortons - and in the Columbus, Ohio, area where Wendy's is based.

But with more Americans eating breakfast outside the home, executives seem confident that many people will want to start their day with a hot cup of Tim Hortons java and a few of the glazed doughnut pieces known as Timbits. ''I see no reason why this isn't a national concept,'' says Gordon F. Teter, Wendy's chairman and chief executive.

However, marketers see several potential holes in the strategy. For instance, who's Tim Horton? Horton, a co-founder of the chain, died in an auto accident in 1974. He attained some celebrity in Canada as a defenseman for the Toronto Maple Leafs, but he is little known in the United States.

Ronald V. Joyce, a co-founder of Tim Hortons who is now a Wendy's director, scoffs at the notion that his chain's name will be a stumbling block. Tim Horton is now as much a trademark as the name of a person, he says. ''Who's Mr. McDonald?'' he asks rhetorically. ''Does anyone know Mr. McDonald?''

Another question: How many baked goods and mugs of coffee can Americans take? Tim Hortons, which opened in Canada in 1964, arrives in the United States well into an explosion of restaurants offering good coffee, rich baked goods and fresh bagels.

In this saturated market, Tim Hortons will run up against everything from Starbucks to Bruegger's Bagels to Dunkin' Donuts and a host of other regional doughnut chains.

''It's highly unlikely they can create a new market,'' says Sharon M. Olson, president of Olson Communications, a Chicago consulting company. ''They're going to have to be so much better that they'll take market share from somebody that's already there.''

Consider the location of one of the new Tim Hortons outlets, which opened last month in Pickerington, Ohio. The store, which shares a building with a new Wendy's, stands near a large Kroger supermarket that offers racks of fresh Krispy Kreme doughnuts in its bakery department. Across the street sits a gas station with doughnut and pastry racks of its own. Fast-food rivals crowd the area.

Tim Hortons expects to float to the top thanks to the quality of its coffee and fresh baked goods - just as the juicy hamburgers and efficient service of Wendy's helped it gain ground on McDonald's Corp. and Burger King Corp., a unit of Grand Metropolitan PLC.

Tim Hortons brews fresh coffee at least every 20 minutes and boasts about replacing its doughnuts and bagels with freshly baked goods several times a day. Most outlets feature a kitchen where pastries are made from scratch.

''You just have to execute,'' Joyce said. ''The consumer anywhere in the world will beat a path to the door of the guy that executes best at a fair price.''

Certainly, Tim Hortons has become a Canadian institution. It is Canada's largest fast-food chain as measured by store count and is second in sales only to McDonald's. There are about 1,450 Tim Hortons stores and kiosks in Canada, a country famously mad for doughnuts. ''If people here were going to think of doughnuts, they'd think of Tim Hortons,'' says David Brodie, an analyst at CIBC Wood Gundy Securities in Toronto.

The two chains say that their menus are complementary. Wendy's doesn't open until after breakfast and offers little for dessert; most of its customers visit around lunch and dinner time. Tim Hortons, which also offers sandwiches and soups, operates round the clock and is busiest early in the morning and late in the evening.

Wendy's thinks that pairing the two chains will attract more families throughout the day. If the children want burgers and fries, executives theorize, Mom and Dad can grab soup or a bagel at Tim Hortons. The combo units include separate counters, kitchens and staffs for the two restaurants but a common dining room and parking lot. Wendy's says that at the nearly 60 such outlets in North America, mostly in Canada, each half draws more customers than the average unit does separately.

The two chains have operated combo units in Canada since 1992. Joyce approached Wendy's for a deal, concerned about succession at Tim Hortons and seeking a partner with enough clout to help his chain spread. ''I wouldn't even have tried to go it alone,'' Joyce says. ''For us to try to market in the U.S. would have been a long, drawn-out process.''

With the 1995 deal, Joyce became Wendy's largest individual shareholder, with a 12.6 percent stake in the company. His holdings currently are valued at $339.6 million. Thomas is Wendy's No. 2 shareholder.

For Wendy's, the Tim Hortons venture displays an emerging confidence - at a time when industry leader McDonald's is seen as vulnerable. The chain, founded by Thomas in 1968, grew quickly in the early 1980s and coined a catch phrase with its ''Where's the Beef?'' TV ads. But hubris pushed Wendy's into an ill-fated breakfast menu and prompted it to expand overseas too rapidly.

The company brought in a fix-it man, James W. Near, who slowed expansion, dropped breakfast and focused on its core burgers and sandwiches. In 1989, meanwhile, Thomas asked to appear in a new TV commercial and became an improbable success.

Now, revenue is up nearly 60 percent since 1991, while the company has opened 1,500 stores to reach 5,000 during the same time span. Wendy's added a range of pita-bread sandwiches to its menu this year and is cautiously growing overseas.